{"id":274028,"date":"2025-06-05T02:56:43","date_gmt":"2025-06-05T02:56:43","guid":{"rendered":"https:\/\/peraltafinancing.com\/accounting\/the-capital-goods-scheme-what-you-need-to-know\/"},"modified":"2025-06-05T02:56:43","modified_gmt":"2025-06-05T02:56:43","slug":"the-capital-goods-scheme-what-you-need-to-know","status":"publish","type":"post","link":"https:\/\/fivemor.com\/?p=274028","title":{"rendered":"The Capital Goods Scheme – what you need to know"},"content":{"rendered":"


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Michael\u00a0Webb ACA CTA, explains how to understand the VAT Capital Goods Scheme.<\/h2>\n

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Have you purchased an expensive capital asset, or assets, for your business?<\/p>\n

Did you already acquire or create such an asset, or assets, when you registered for VAT?<\/p>\n

If you answered yes to the above then you may have to adjust the amount of VAT you reclaim for your business. The term VAT often comes with a vast amount complexity given the range of rates, rules, reclaims, penalties, and reliefs that make up the landscape for this area of taxation.\u00a0<\/p>\n

It is essential for businesses to understand and manage VAT because you need to ascertain which rate of this tax applies to the goods and services you’re selling. It’s also vital to keep accurate record-keeping and reporting because your business will likely collect VAT from your customers, only to then pay it to HMRC.\u00a0<\/p>\n

VAT compliance is therefore a critical part of your operations and in this post we explain how you can potentially reclaim VAT on certain capital goods you’ve acquired. Read on to find out more about the Capital Goods Scheme<\/span> that applies in such instances, and what you need to adhere to in order to manage this.<\/p>\n

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What is the Capital Goods Scheme?<\/h2>\n

The Capital Goods Scheme (CGS) is a UK VAT mechanism<\/span> that adjusts the amount of input VAT that can be reclaimed on high-value capital assets<\/span> over several years. This scheme is particularly relevant for businesses that invest in significant capital assets such as land, buildings, computers, IT, and even aircraft given the usage of these goods may vary over time.<\/p>\n

Input tax<\/span> refers to the VAT you pay on the purchase of goods and services where VAT is applicable. If you’re VAT-registered, as the purchaser, and your costs are part of your trade of taxable supplies, your Input VAT incurred for the period can be offset against output VAT<\/span> charged (the VAT you apply to goods and services) for the same timeframe. The difference, where applicable, is then due to HMRC. In instances where your input VAT exceeds output VAT, the difference is recovered from HMRC.\u00a0<\/p>\n

In the case of CGS, the aim is to ensure that the VAT recovered on capital expenditure is in line with the usage of those assets over an adjustment period<\/span>. This means the initial input VAT claimed when a qualifying asset was purchased, could then be adjusted in the following years where the proportion of taxable use changes. The point being usage of capital items can vary over a timeframe thereby impacting how much VAT can be reclaimed.<\/p>\n

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